You are told that good M has an income elasticity of demand of 5. Which of the following items might good M be?
A)a hamburger
B)a hot dog
C)a premium computer
D)a used, 1999 budget four-door sedan

Question

Quizplus · Accepted Answer

A high income elasticity of demand (greater than 1) indicates that a good is a luxury item, meaning that as income increases, demand for the good increases by a proportionately larger amount. A premium computer is a luxury item that people are likely to buy more of as their incomes rise, making it the most likely option with an income elasticity of demand of 5. The other options are not likely to have such a high income elasticity of demand as they are either basic necessities (like a hamburger or hot dog) or relatively low-cost items (like a used car from 1999).

You Are Told That Good M Has an Income Elasticity